Wednesday, January 6, 2010

Coauthors outline the problems the U.S. faces as we lose money and power

BY RICHARD PACHTER

I've long thought that the best advice one can give a youngster seeking success in the business world is to learn Chinese. Our pals in Beijing and Shanghai hold serious paper on us ("Us, U.S.,'' as Paul Harvey used to say) and they can wreak terminal havoc upon America, its institutions and infrastructure, if and when they chose. But it's not really in their best interests to ask us to ante up and watch us turn our pockets inside out, show our empty hands and shrug.

Why?

Cohen and DeLong invoke the quote, ``If you owe the bank $1 million, the bank has you; if you owe $1 billion, you have the bank,'' then spend much of the rest of the book explaining why and how it's true. Along the way, they discuss the failure of neoliberalism, which sought to transfer portions of the control of the economy from the public to the private sector, skewer former Fed head Alan Greenspan, and describe with palpable awe the pandemic failure to oversee credit and banking in the United States and the major role it played -- and continues to play -- in our ongoing economic meltdown. The rampant corruption of the political system is also calmly recounted as a powerful catalyst for this dissolution and dispersal of American wealth.

Though both authors are academics, they're rather decent writers; DeLong is also a blogger (http://delong.typepad.com) who struggles online daily to make sense of various economic effluvia and ephemera with a combination of alacrity, disgust and amusement. But this book is far from a knee-slapper and unlikely to be chosen by Ms. Winfrey for her book club.

They cover a fair amount of ground here and their depiction of the loss of U.S. influence is tempered by their rational, non-alarmist manner. Though resistant to speculation on things that are obviously unknown and unknowable, the pair does spell out the fading power of government and private industry to collaborate on industrial and scientific innovation. The authors leave any horrific conclusions and sensational scenarios to others.

The absence of requisite funding will hit this area quite hard, they surmise. The natural constituency for this alarm might be found in either political party, though both are focused on other things. They may eventually wake up just in time to do nothing but howl and raise impotent ire, however.

Overall, the loss of U.S. dominance due to lack of governmental largess might promote more multilateralism, as we become just another country, rather than the planet's sole superpower. It may force some of our beneficiaries to stand on their own and opponents to focus inward. It may also further the domestic growth of China as their credit ceases to subsidize and support our consumption of their consumer goods. After all, it's a very big country and is already growing faster than any economy on the planet.

Cohen and DeLong's interesting look at the real New World Order is worthy of consideration as it describes a reality that's fast approaching.